The Securities and Exchange Commission (SEC), Division of Corporate Finance (CorpFin), has issued a statement on stablecoins.
During the last administration, the SEC’s position was that pretty much all crypto was deemed to be securities. Bitcoin was an exception, and perhaps Ethereum. Things have changed since the Trump Administration took over, which has been very crypto-friendly. The SEC is currently working to provide greater clarity on digital assets, including stablecoins.
In general, stablecoins are tied to another asset. Frequently, this means fiat currency like the US dollar or the Euro, but stablecoins can also be tied to other assets like gold. There have been “algorithmic” stablecoins that seek to maintain a specific value programmatically. As for currency-based stablecoins, many view these digital assets as simply a new method of payments that is more efficient and less costly than legacy payments rails.
CorpFin specifically addresses stablecoins tied to the dollar’s value. These coins are backed by assets and can be redeemed one-to-one for a dollar.
Covered Stablecoins do not need to register with the SEC, according to the statement.
“Covered Stablecoins are crypto assets designed and marketed for use as a means of making payments, transmitting money, or storing value. They are designed to maintain a stable value relative to USD and are backed by USD and/or other assets that are considered low-risk and readily liquid so as to allow a Covered Stablecoin issuer to honor redemptions on demand.[6] These assets are held in a reserve with a USD-value that meets or exceeds the redemption value of the Covered Stablecoins in circulation. A Covered Stablecoin issuer mints and redeems Covered Stablecoins on a one-for-one basis with USD at any time and in unlimited quantities. In other words, a Covered Stablecoin issuer always stands ready to mint a Covered Stablecoin for one USD (or the relevant fraction) and redeem a Covered Stablecoin for one USD (or the relevant fraction), and there is no limitation on the amount of Covered Stablecoins that the issuer mints or redeems. Through this fixed-price, unlimited mint-redeem structure, the market price of a Covered Stablecoin is likely to remain stable relative to USD.”
So, holding a covered stablecoin does not provide any financial benefit or loss; it is simply a method of value transfer or payment.
Importantly, CorpFin states that stablecoin holders are not paid any interest for holding these digital assets.
When applying the Howey Test to the parameters outlined by the SEC, stablecoins are not deemed to be securities.
The statement on stablecoins is available here.